Apr. 12 at 10:02 PM
$WMB is one of the most critical energy infrastructure platforms in the United States, and it is currently set to benefit from three independently investable theses that are about to converge:
Transco pipeline is structurally irreplaceable, 95% fee-based, and benefits from inflation
$5.1B Power Innovation division is pre-contracted to Meta and hyperscalers on 10-year take-or-pay terms directly tied to the AI power buildout
U.S. LNG export capacity doubling by 2028 creates incremental unmodeled throughput revenue
Roughly 95% of Williams’ cash flows are fee-based and backed by long-term contracts, which makes the business highly predictable and insulated from commodity price swings.
So this is not a bet on gas prices, it’s a bet on volumes moving through an essential network…
And those volumes are set to rise.
U.S. electricity demand is beginning to inflect higher for the first time in decades, driven largely by AI data centers and electrification.
Estimates now show power demand approaching 1,000 terawatt-hours by 2030, while current infrastructure is nowhere near sufficient to meet that demand.
That supply-demand imbalance needs to be solved, and natural gas is the most immediate bridge.
Williams is already leaning into this trend through its Power Innovation segment, a
$5.1B platform tied directly to the buildout of power infrastructure.
Importantly, this isn’t speculative growth.
The company has already secured 10-year take-or-pay agreements with players like Meta Platforms, Inc., locking in long-duration, contracted cash flows tied to AI demand.
On top of that, (like mentioned above for Mastercard), Williams has built-in inflation protection.
A large portion of its pipeline revenues are regulated by the Federal Energy Regulatory Commission and indexed to producer price inflation (PPI), meaning higher inflation directly increases the rates Williams is allowed to charge.
As shown below, even modest inflation has a measurable impact:
- At just 2% inflation, EBITDA increases by ~1.1%
- At 4% inflation, EBITDA rises nearly 2%
There’s also a third driver that the market is underappreciating: LNG (liquefied natural gas).
U.S. LNG export capacity is expected to double by 2028, which requires significantly more natural gas to flow through pipeline systems like Transco.
This creates incremental throughput demand for WMB.
Despite these structural advantages, WMB trades at a valuation that I find compelling relative to their peers. (see first pic)
Despite trading at a lower valuation multiple to their closest peer (KMI), at current prices, WMB:
- Is growing EBITDA faster
- Has higher EBITDA margins
- Has lower leverage
Than basically all of their peers.
If we look at them through the lens of a sensitivity analysis, assuming a 10% EBITDA CAGR with no multiple expansion over just a 2 year time period, we would be looking at a price target of
$99 a share.
